Proving that the bear market’s bad fortune hasn’t beaten down everyone, Kansas City Equity Partners recently managed to squeeze $45 million worth of fresh capital out of its cadre of limited partners, more than doubling the size of its sophomore fund.
Although KCEP Ventures II was originally closed in early 1999, this latest infusion serves to expand the vehicle, giving the firm more capital to play with as it evaluates future investments, said Tom Palmer, a managing director with the firm.
“We leveraged our private equity with the Small Business Administration’s participating securities program so we didn’t have to get any new licenses to increase our existing vehicle,” he explained. “It provided a cleaner path to more capital.” Kansas City Equity Partners I, vintaged when the firm was founded in 1994, was already fully invested and therefore could not be tapped for additional resources, he added.
All but four of the investors that signed on to contribute to the firm’s most recent capital influx were existing limited partners in KCEP II, Palmer noted. Moreover, GreenStreet Capital, also an investor in the fund, took on a second role as a venture partner at the firm as part of the expansion.
“GreenStreet will remain a significant LP to the fund, and we will also invest side-by-side, particularly in deals where they can provide substantial knowledge or value add, especially in energy and communications,” Palmer said.
As part of that arrangement, former GreenStreet Capital President Terry Matlack has come on board as KCEP’s fourth managing director, and will focus primarily on telecom and pure communications plays.
There were no changes to KCEP’s advisory board as a result of the fund’s expansion, and Rick Green and Fred Lyons – respectively, chairman and chief executive of UtiliCorp United and retired chairman and chief executive of pharmaceutical firm Hoescht AG (now known as Aventis SA) – will stay on as special LPs for the firm.
Palmer declined to disclose the names of the firm’s traditional LPs besides GreenStreet and the Small Business Administration, but did say that its LP roster includes the usual crew of corporations, foundations, banks, trusts, and high-net-worth individuals and entrepreneurs.
Close To The Heartland
As in the past, KCEP’s strategy remains more regionally-focused than stage-driven. Although the firm mostly shies away from pure buyouts, its strategy runs the gamut from early- to late-stage and growth transactions. Still, for the most part, it will stick close to its home turf, backing Midwest-based information technology, telecommunications and branded consumer products/specialty retail plays “with significant growth potential,” Palmer said.
Thus far, the firm has completed approximately 15 such deals from Fund II, with each investment in the neighborhood of $2 million to $6 million.
Moreover, KCEP is a big co-investment player. It recently invested alongside Gazelle Technology Ventures and White Pines Management LLC to pump $7 million into Freightpro.com Inc., a Shawnee Mission, Kan.-based company that offers online package shipment and management services.
And the firm has helped outfit Boulder, Colo.-based Outlast Technologies with more than $13.4 million over the past four years, along with the likes of Penny Lane Partners, Sycamore Ventures and Walden Capital Management Corp. Outlast develops, manufactures and sells thermal regulating fibers and fabrics, mostly for outdoor clothing.
In addition to Matlack and Palmer, KCEP II also is managed by Bill Reisler and David Schulte, both of whom are managing directors at the firm.
Robyn Kurdek can be contacted at Story Feedback.